Surging Chinese (and US) debt is structural

CHINA FINANCIAL - Report 17 Jul 2023 by Michael Pettis

Special points to highlight in this issue:

* Both June and second quarter numbers were disappointing. I continue to expect growth to surprise on the upside in the second half of 2023, but only because there is increasing pressure on Beijing, worried about a disappointing first half of the year, to do all it can do to boost economic activity.

* While most analysts focus on the fact that growth in GDP and in other economic indicators was worse than expected, I would argue that what matters even more is that the quality of growth further deteriorated. Imports underperformed exports, retail sales underperformed industrial production, business investment underperformed total investment, and in June total debt surged.

* This suggests that even as growth slowed, there was a shift from that part of the economy that operates under hard budget constraints to that part of the economy that operates under soft budget constraints.

Now read on...

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